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The federal funds rate and the channels of monetary transmission

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  • Ben S. Bernanke
  • Alan S. Blinder

Abstract

The authors show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables. Then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves; that is, the funds rate is a good indicator of monetary policy actions. Finally, using innovations to the funds rate as a measure of changes in policy, the authors present evidence consistent with the view that monetary policy works at least in part through "credit" (i.e., bank loans) as well as through "money" (i.e., bank deposits). Copyright 1992 by American Economic Association.
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Suggested Citation

  • Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:89-10
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    References listed on IDEAS

    as
    1. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    2. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184, National Bureau of Economic Research, Inc.
    3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    4. Avery, Robert B., 1979. "Modeling monetary policy as an unobserved variable," Journal of Econometrics, Elsevier, vol. 10(3), pages 291-311, August.
    5. Blinder, Alan S & Stiglitz, Joseph E, 1983. "Money, Credit Constraints, and Economic Activity," American Economic Review, American Economic Association, vol. 73(2), pages 297-302, May.
    6. Mishkin, Frederic S, 1982. "Does Anticipated Monetary Policy Matter? An Econometric Investigation," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 22-51, February.
    7. Lawrence J. Christiano & Lars Ljungqvist, 1987. "Money does Granger-cause output in the bivariate output-money relation," Staff Report 108, Federal Reserve Bank of Minneapolis.
    8. Leonall C. Andersen & Jerry L. Jordan, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, vol. 50(Nov), pages 11-23.
    9. Benjamin M. Friedman & Kenneth N. Kuttner, 1989. "Money, Income and Prices After the 1980s," NBER Working Papers 2852, National Bureau of Economic Research, Inc.
    10. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
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